MRKT 325 Lecture 1: Puts and Calls
Document Summary
The holder of this call has the right to buy soybeans for . 40/bu (strike) by march 2019. Call buyer (holder): pay premium: you can choose to exercise the call on any day until march 2019 and then buy soybeans for. Call seller: receive premium: you have the obligation to sell soybeans for . 40/bu if the contract is exercised against you. How much would you be willing to pay for this contract? (premium) How much would you be willing to sell this contract for? (premium) Don"t have to look for profit immediately after buying this contract. If there is reason to believe the market price will go up, buy the contract at premium higher if not too much higher (think if price rises to . 00/bu in next few months) If there is reason to believe the market will go down, do not buy the contract at premium of higher than sh. 15/bu.
